Tomorrow’s Fortune

Welcome to the action-packed newsletter designed to help you navigate the world of business and investing. If you missed last week’s post, check it out here. 😎 

Today’s Digest: 

• Truth About Seller’s Numbers: Trust is one of the most sensitive pieces of a deal… and I’ll show you why trusting the numbers could be a fatal mistake

• What’s Happening in the Markets? Billion Dollar Lottery Jackpot, Trump’s Chip Tariffs, NFL Revenue Economics and GOOG Rallying the Tech Troops

• Deal Review We found a cash flowing Wastewater Treatment Design business in Washington ($464K of Cash Flow). Click HERE for the listing

TOP STORY

#1 Mistake When Buying a Business…

When it comes to buying a small business, the biggest mistake isn’t overpaying, missing a legal clause, or even picking the wrong industry.

It’s believing the seller’s numbers.

Why SDE / EBITDA Can’t Be Taken at Face Value

When a seller (or broker) presents financials, you’ll often see SDE (Seller’s Discretionary Earnings) or adjusted EBITDA. These are supposed to represent “true earnings” of the business.

Here’s the problem: they’re often wildly adjusted.

Examples of “adjustments” we routinely see:

• ✅ Legit adjustments: One-time legal fees, non-recurring COVID grants, owner’s personal car lease.

• 🚩 Questionable adjustments: Family members on payroll (“they don’t really work here”), “marketing expenses we didn’t really need,” or “my travel was personal.”

• 🚨 Red flag adjustments: Adding back rent when the business must occupy real estate, assuming higher margins than actual, or excluding customer churn as “temporary.”

Every dollar “added back” is an assumption that this cost will not recur under your ownership. That’s often a fantasy.

Why This Matters for You as a Buyer

If you believe the seller’s version of “normalized earnings,” you’ll:

• Overpay → A business marketed at 3× SDE may really be trading at 5× true cash flow once the fluff is stripped out.

• Misjudge debt capacity → Banks lend based on adjusted EBITDA. If those adjustments don’t hold up, your debt service coverage may collapse.

• Miss hidden risks → Inflated margins today could mask systemic issues (over-reliance on discounts, deferred maintenance, or key customer concentration).

This is how “$1M EBITDA” businesses turn into $500K cash flow businesses overnight.

The Playbook: How to Protect Yourself